# CITY OfMERCED "Gatewayto Yosemite"

May 5, 2015

Mr. Kevin Schlemmer ChiefEAS & DomesticAnalysis Division, X-53 Office ofAviationAnalysis, Room W86-309 U.S. DepartmentofTransportation 1200 NewJerseyAvenue, S.E. Washington, DC 20590
Re: Order No. 2014-5-9, Order Requesting Proposals
Dear Mr. Schlemmer, 

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I am pleased to write as the City's administrative head ofthe Merced Regional Airport (MCE) to convey comments regarding selection of a commercial air carrier to provide EssentialAir Serviceforthe community and region.
As you know, the City carefully reviewed the original proposals submitted by Boutique Air, Great Lakes Aviation, Ltd., Makani Kai Air (dba Wine Country Express), Mokulele Airlines, and Seaport Airlines, Inc. in response to the Department of Transportation (DOT) Order2014-5-9 Requesting Proposalsfor EssentialAir Service (EAS).
A subcommittee comprised of three representatives of the Merced Regional Airport ·Authority (MRAA), two members of airport management, and a member of the public

interviewed executives of the five air carriers on August 7, 2014. Representatives of Mokulele Airlines and Seaport Airlines met with the subcommittee for a second discussion on September 16, 2014. The Airport Authority convened on August 13, and September 23, 2014, during which MRAA commissioners, airport and City of Merced staff, and interested community members discussed the proposals. My letter to you of September29, 2014, expressed the desire ofthe City to work with Great Lakes Airlines for establishment of service between MCE and the Los Angeles International Airport (LAX) with a regionaljeton an accelerated basis.

678 West 18th Street o Merced, Caliiornia 95340May 5, 2015 Page 2

Since that time, the City has been in discussion with Great Lakes Airlines, as the only provider offering two-engine aircraft and a pressurized cabin. As you know, the discussionswith Great Lakes in the pastfew months shifted to afocus on the delivery of service in Brasilia aircraft, butwithout afirm startofservice date orrange. On March 26, 2015, Great Lakes officials corresponded with you seeking to formally alter the bid to provide for service in EMB-120 Brasilia aircraft to LAX ratherthan regionaljet service to Denver. The DOT subsequently extended the opportunity to amend initial proposals to the otherfour companies originally interested in providing service to MCE. Ofthe group offour, BoutiqueAirand SeaportAirlines, Inc., also elected to submit revised proposals. On April 21, 2015, the Airport Authority subcommittee interviewed company executives from Boutique Air, Great Lakes Airlines, and Seaport Airlines, Inc. The options were discussed that evening at the monthly Airport Authority meeting and those opinions have been conveyed to me. Recommendation Following careful evaluation ofthe opportunities presented bythe airline companies, the City of Merced has concluded that its interests and those of the region will be best served by Boutique Air. Boutique has dramatically expanded its operational scope and points ofservice in the past eight months sincethe original proposals were submitted. It has established a positive track record in the EAS communities it serves and it recently was recommended by additional communities to serve EAS routes. The Pilatus PC-12 aircraft is capable of providing comfortable and efficient service between MCE and LAX given its pressurized cabin and superior cruise speed capabilities. The airline's performance at other EAS sites for reliability of the service and growth of passenger numbers is impressive and the commitment to engage in aggressive marketing to the populace in Merced and the broader region is also highly desirable. The additional points of service beyond LAX, to Oakland International Airport (OAK) and to McCarran International Airport in Las Vegas (LAS), represent a very attractive package that we believe will well serve Merced and the region. In addition, the pending final authorization from TSA to enable Boutique to fly.from sterile to sterile locations is essential to the City's recommendation.
We also note that over 50% ofthe passengers departing the Merced Regional Airport connect at LAX through code share and/or interline mechanisms to a larger carrier for travel to afinal destination. We recognize that the percentage maywell be higher since passengers transferring to a carrier such as Southwest Airlines would not be discernable since Southwest does not utilize inter-line arrangements. The current absence ofacode share with a majorcarrier and interline agreements is ofconcern, but we believe that Boutique will work effectively with passengers to make the transition as convenient as possible. In addition, Boutique participates in the major online reservations sites.May 5, 2015 Page 3

Boutique also has presented a pricing strategy that, when coupled with its planned aggressive marketing, should yield significantly higher enplanement numbers. We are confidant that with this new carrier the EAS program numbers will improve drastically and be sufficient to exceed the average of 10 passengers per service day minimum required for EAS eligibility. We note that the federal fiscal year is nearly half over and ·thatthe DOT enplanement numbers for MCE for the period October2014 through April 2015 are not at the required levels. Boutique has stated that it could begin service at MCE 60

- 90 days after award ofthe contract. We will work with Boutique to build as many enplanements as possible in the months remaining in the fiscal year toward achieving maximized traffic levels. Moreover, Boutique recently hired a marketing manager and has committed to investing $30,000 or more into the expanded MCE market area. It also is interested in marketing Merced and the surrounding attractions such as Yosemite National Park to prospective passengers in each of the destination cities. The bid by Boutique also will satisfythe DOT requirementthatthe per passenger subsidy notexceed $200 as ofSeptember30, 2015. Pilot shortages pose a critical nation-wide problem that unfortunately has affected Great Lakes Airlines severely. The shortage situation is also affecting SeaportAirlines, Inc., in one eastern market. Boutique Air is seeking to retain its pilots through its attractive employment compensation packages and it anticipates being able to continue to operate with afull cadre ofpilots, many on acareeremployee basis. Importance ofNew EAS Contract
With the advent ofservice with a new carrier offering reliable service to highly desirable destinations, Merced and the surrounding region of over one million population will benefit even more greatly from the EAS service and we are confident that reliability of service and the number of passenger enplanements will be restored to satisfy and exceed the DOT EAS standard. As you know, the airport consistently generated much higher passenger numbers until recentyears. It is also importantto note that asignificant new market area has emerged with the recent cancellation ofpassengerservicefrom Modestoto LAX and San Francisco InternationalAirport (SFO). Following the service cancellation, which increased our service area population to over one million, agrowing numberofnew passengersfrom Tracy, Manteca, Modesto, and Turlock, are expressing interest in flying outofthe Merced RegionalAirport. Webelievethattargeted marketing tothese areasto be launched following the award ofa newcontractwill yield notably higher passenger numbersand will serve a regional need, coupled with the provision of reliable service. In addition, the Skywestservice with Brasilia aircraft between Fresno and LAXwill terminate in early May2015. It is our understanding thatthe servicewill be replacedMay 5, 2015 Page4

with regional jet flights to LAX each day operating with lesser frequency, potentially creating an additional market to the south. It is also important to note that reliable air service will help minimize congestion on the heavilytraveled highways in the region. Comments Regarding Air Service Bids
In offering comments, we are cognizant of the published criteria utilized by DOT in evaluating bids which includes the factors of service reliability, contractual and marketing arrangements with a larger carrier at the hub, interline arrangements with a largercarrieratthe hub, and communityviews.
We also note our concern about the prospect of waiving the guarantee to EAS air service provided by largeraircraftwith two or more engines and using two pilots should a provider operating smaller single engine aircraft be selected and provide service for 60 consecutive service days, as provided in U.S.C. Section 41732(b)(5). However, at this point in the discussions, we believe that a shift to a carrier offering service in smaller single engine aircraft is necessary in order to recover reliability in service and increase passenger numbers. Great Lakes Airlines
The City until recently believed that the region and local community would be best served by the amended service bid by Great Lakes Airlines. Great Lakes is the only Part 121 carrier and the sole contending service provider that operates larger, twin engine aircraft with a pressurized cabin which is more suitable for flights into LAX. It offers connectivity to other major airlines for continuing travel to a final destination through code share arrangements with United Airlines and interline agreements with mostofthe majorcarriers.
We also note, however, that Great Lakes unfortunately has provided poor reliability of service due to dramatic shortages of available crew resulting from regulatory changes raising to 1,500 the number of flight hours needed for first officers to attain ATP credentials. This has resulted in operation ofthe Beech 1900with only 9of its 19seats to enable the airline to operate under Part 135for the purpose offirst officerflight hour standards. This situation continues to pose challenges for Great Lakes, despite its continuing besteffortsto recruit pilots to addressthe crew shortfall. It is clearto us, that without greater reliability ofservice and additional seat capacity above the current nineseat configuration ofthe Beech 1900, the assurance ofadequate flight crew availability, and a near term date for start of Brasilia service, that the City cannot enplane an adequate numberofpassengersto satisfy EAS standards.May5, 2015 Page 5

In addition, the per passenger subsidy calculation as bid forthe firstyear pfthe contract is $397.02 as a result of basing the bid on the nine seat configuration of the Beech 1900. We are aware of the requirement that the per passenger subsidy not exceed $200.00 by September30, 2015. We are unable to estimatewhen the service in Brasilia aircraft would sufficiently reduce the per-passenger subsidy without a clear start window. Great Lakes has committed to expend an estimated $30,000 in cash for marketing to make the Brasilia service successful, along with the personal involvement of company leadership in community events and meetings with key business leaders in the region, as part ofmajoreffortsto restore confidence in the reliability ofthe airservice.
While shifting to Brasilia service could be very attractive to the flying public and could significantly bolster the economic development prospects for Merced and the surrounding area, the inabilityto secure anestimated start date or an estimated window for startofservice contributes significantlyto our recommendation for BoutiqueAir.
I also note that we have enjoyed working with the Great Lakes leadership and the excellent MCE station staff overthe past several years and we look forward to working with Great Lakes forthe remainder ofthe time it serves MCE. SeaportAirlines Inc.
We very much appreciatedthe revised bid from SeaportAirlines, Inc., and we recognize the strength of the passenger enplanement numbers experienced to date at Visalia (VIS) since the beginning of service with Seaport. Seaport also has committed $25,000 or more for marketing purposes for MCE service. We remain concerned, however, that the unpressurized and comparatively slower Caravan aircraft is notthe optimal airplane for flight service to Los Angeles from Merced and we also believe that LAX represents the more convenient airport over Burbank Bob Hope Airportfor passengers seeking to transferto another carrierfortravel to afinal destination. In addition, we understand that Seaportcould not begin service at MCE until October2015.
Conclusion We share the common goal ofrestoring the enplanement numbers atthe Merced Regional Airportthrough reliable and affordable airservice and we appreciate working in partnership with you in furtherance ofthis objective. The City believesthatthe proposed servicefrom BoutiqueAirwill prove beneficial tothe region and will be highly used bytravelers. We also recognizethe potential benefits ofthe service to business travelers, especiallyfaculty and stafffrom UC Merced who regularlytravel by cartoMay5, 2015 Page 6
meetings in California, especiallyto Oakland and LosAngeles. Wealso notethat historically some of the largest passenger counts were generated on flights to Las Vegas. The airport is critical to the City's ability to continue to attract new business interests. This boostto economicdevelopment is ofvital importanceto Merced, which is a·verydiverse communitywhich continues to face long-term economic challenges.
Thankyou very much foryour review ofthis material and please do not hesitateto contactJanet E. Young, InterimAirport Managerattel: 209-385-6874 (email: youngj@cityofmerced.org), should you have questions.
Sincerely,

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John M. Bramble City Manager

Cc: MichaelWegley, DirectorofWater Resources and Reclamation and Airport Janet E. Young, Interim Airport Manager

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Larry Morelock, Chair, Merced RegionalAirportAuthority